Airlines Try to Learn From Past

In calling for capacity restraint, Bastian joins industry executives including Gerard Arpey, CEO of AMR(AMR Quote), the parent of the world's biggest carrier American Airlines.

American has said it will cut overall capacity next year by 1%, with a larger decrease in domestic capacity. Delta, meanwhile, said last week that in 2006 its capacity will decline by 7%, with domestic capacity down by 14%.

Calyon Securities analyst Ray Neidl suggested in a recent report that industry discipline is holding, and he predicted an overall profit of $5.6 billion in 2007. Neidl said legacy carriers have cut back on growth, low-cost carriers have followed and "we believe further cuts [by low-cost carriers] will be needed."

Benchmark Capital analyst Helene Becker said airlines are benefiting from a confluence of events -- fuel costs trending down, few aircraft on order, high loads that negate the necessity to reduce fares and an absence of open labor contracts. "It's not a perfect world," she said. "But if you put everything together, it's favorable. It's better than we've seen it for a while."

In the short term, oil prices will likely decline further, said Bart Melek, senior economist at BMO Nesbitt Burns in Toronto. "Supply is moving up, there is plenty of inventory around the world, even though OPEC is trying to cut output, and we will be having a slower economy over the next quarter or two," he said. Melek added that prices for a barrel of crude could fall into the mid-$50's over the next few weeks.